Money-laundering hack and Japanese law could threaten a wipeout of
Repayment action against bankrupt Mt Gox may crash the entire market, says Hasan Chowdhury
At 5pm on a summer’s evening in June, Tokyo’s District Court set in motion a series of events that now threatens a wipeout of the world’s most popular digital currency.
The court started the process of civil rehabilitation for creditors against Mt Gox, a former cryptocurrency exchange based in Shibuya, Tokyo, which was once responsible for facilitating more than 70pc of the world’s Bitcoin transactions.
Mt Gox filed for bankruptcy in 2014 after it emerged that about 850,000 coins, then worth $500m (£382m), had disappeared from its platform in a laundering scheme masterminded by Alexander Vinnik, a Russian criminal who was arrested in Greece in 2017.
Since 2014, investors across the world have been battling to get their money back from the nowdefunct exchange.
Mark Karpelès, the former chief executive of Mt Gox, has described the experience as similar to “when you fall from a building and you see the ground getting closer”.
Tokyo’s district court ruled that the Mt Gox bankruptcy proceedings were not sufficient and should become what is known in Japanese law as civil rehabilitation. This would see Mt Gox’s leftover holdings of 160,000 Bitcoins paid to former investors who were wiped out.
However, there is a twist. Instead of being reimbursed at $600 per Bitcoin – the value back in 2014 – the civil rehabilitation could see investors receive Bitcoin at their current value of $6,513.
The man who is taking charge of the process is Nobuaki Kobayashi, a lawyer known as “Tokyo’s Bitcoin and with deep ties to the Silk Road, an online black market for drugs sales, was starting to move up to 100,000 Bitcoins from the wallet.
In the past, Bitcoin markets have previously fallen flat when large sums of Bitcoin have been traded in for fiat currency, which is why activity from the former Silk Road wallet has been identified as a cause for the plunge that saw 12.5pc knocked off Bitcoin’s value in the space of 24 hours last week.
But the potential damage to the market is yet to be realised. Creditors have until Oct 22 to file claims against Mt Gox, after which the potential payout could be worth more than $1bn. Mt Gox is yet to make any official payments to creditors. According to Kim Nilsson, an early customer of Mt Gox and one of several creditors demanding repayment, a significant move to cash out any Bitcoins received in repayment as fiat currency could see the whole market crash.
“If a creditor says that I would prefer to be paid out in [Japanese] yen, for example, which would be the norm for Japanese civil bankruptcies, then the trustee has to sell the Bitcoins to convert them into money,” said Nilsson.
“In some form you have to do that on the market, but that’s going to push down the price because there’s no buyer for 160,000 Bitcoins out there, it’s simply worth too much. It’s worth